Microsoft plans to change its licensing model later this year, and it will most likely force companies to keep software versions current or suffer dramatic spikes in upgrade costs.

Microsoft's new model, announced last week, doesn't increase licensing fees, but it could cost corporations money if they don't get their licensing plans in order before October.

"The new licensing will compel users to move to the latest versions of software," says Kurt Schlegel, an analyst with Meta Group. "And enterprises will find that it will make more financial sense to keep everything under software maintenance to stay current."

Observers are questioning who benefits from the new licensing, which goes into effect in October.

"Microsoft says this is in the best interest of the enterprise, but that is a fallacy," says John Kretz, president of Enlightened Point Consulting Group. "There are a lot of people who don't see the value in upgrading from say, Office 97, and that is the attitude Microsoft wants to change."

Customers who upgrade on cycles longer than three years will see higher costs for software, according to Simon Hughes, program manager for worldwide licensing and pricing at Microsoft. But nearly 80% of users will see costs unchanged or reduced, he says.

The biggest change Microsoft announced last week was the unification of all its upgrade programs under one umbrella called Software Assurance.

Under the program, customers with Open or Select licensing agreements will get rights to all version upgrades. They will pay 29% of the full-license price of desktop software and 25% of the price of server software per user per year. For example, a $368 Office license would carry a $107 fee for Software Assurance.

But users will need to get their software current before the October licensing kickoff. Only those using the latest versions of software will be eligible for Software Assurance. The rule also applies to those with Enterprise Agreement licensing, which includes the Software Assurance program.

IT executives who let Enterprise Agreements lapse between Oct. 1 and Jan. 31, 2002 could get whacked with huge payments for new licenses to get into Software Assurance.

"There will be no concept of upgrade pricing anymore," says Al Gillen, an analyst with IDC. "For people who have been sitting on Windows 95 for six years, if they want to upgrade they have to start over with full licensing." Currently, users on older versions of software can buy into one of the upgrade packages being replaced by Software Assurance.

Microsoft won't eliminate perpetual licensing, a cornerstone of Enterprise Agreements, but will add a subscription licensing option. That means users have can use the software for only a set period.

Microsoft also will reduce the cost of renewing Enterprise Agreements, although details haven't been released. o

This story, "Microsoft licensing change may force more upgrades" was originally published by
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